West African Protesters Demand Their Countries Abandon the French Colonial CFA Currency

There have been an occasional outcry from former France colonies about the use of the CFA, a currency France created in the 1940s for its African colonies. The CFA is pegged to the euro and guaranteed by national currency reserves deposited with the French treasury.

Protesters gathered in several West African capitals Saturday to demand their countries abandon the CFA franc in favor of a common African currency. Passions over the issue have been reignited since Senegal arrested and expelled an activist for burning a CFA bill at a rally last month. Senegal is one of 14 countries in West and Central Africa’s two monetary unions still using the CFA. Senegal recently expelled the movement’s founder, French-Beninese activist Kemi Seba, after he burned a 5,000 CFA note during a rally in Dakar in August.

The currency has been criticized for making economic planning for the developing countries of French West Africa all but impossible since the CFA’s value is pegged to the euro (whose monetary policy is set by the European Central Bank). Others disagree and argue that the CFA helps stabilize the national currencies of Franc Zone member-countries and greatly facilitates the flow of exports and imports between France and the member-countries.

Robber or Facilitator?

“The monetary policy governing such a diverse aggregation of countries is uncomplicated for African Central Banks because it is, in fact, operated by the French Treasury, without reference to the central fiscal authorities of any of the African states. Each African state must deposit 65% (now reduced to 50%) of its foreign reserves with the French Treasury plus an additional 20% for administration. This means that since the early 1960s around 85% of the Africans’ foreign reserves have been transferred to France. These are deposited in the “operations accounts” controlled by the French Treasury.

The two CFA banks are African in name, but have no monetary policies of their own. The countries themselves do not know, nor are they told, how much of the pool of foreign reserves held by the French Treasury belongs to them as a group or individually. The earnings of the investment of these funds in the French Treasury pool (at a rate of 0.75%) are supposed to be added to the pool but no accounting has ever been given to either the banks or the countries of the details of any such changes. The limited group of high officials in the French Treasury who have knowledge of the amounts in the “operations accounts”, where these funds are invested; whether there is a profit on these investments; are prohibited from disclosing any of this information to the CFA banks or the central banks of the African states. This makes it impossible for African members to regulate their own monetary policies. A recent Bloomberg survey estimates that the French Treasury is holding at least US$20 to $40 billion in African foreign reserves which are held in the name of the French Treasury.

African governments do not have access to these funds held by the Treasury but are allowed to borrow their own money from the French at commercial rates. In addition to the difficulties posed by the French Treasury holding unaccounted African money, France is in financial trouble. France has run out of money. It has massive public and bank debt. The reason it has been able to sustain itself so far is because it has had the cushion of the cash deposited with the French Treasury by the African states since 1960. Much of this is held in both stocks in the name of the French Treasury and in bonds whose values have been offset and used to collateralize a substantial amount of French gilts, including pledges to the ECB.

This has happened before. In 1994, the French Treasury simply devalued the CFA franc by 50%, changing from a parity of one French franc for 50 CFA francs to the pre-Euro 100 CFA francs. This caused havoc in the African economies but the African Heads of State of did not do anything or make provisions for changing the relationship with France over their currencies. In a meeting in Yaounde in November 2016 another devaluation was mooted but was postponed.”

“When you have a currency fixed to a strong currency like the euro, it is easy to import. But when you want to export, your products cannot compete with other foreign countries,” said Ndongo Samab Sylla, an economist at Rosa Luxemburg Foundation to VoaNews.

For now, the debate continues. But in the past year, the presidents of Senegal and Ivory Coast have publicly reaffirmed their support for the CFA, making it unlikely it will disappear any time soon.